DOL Issues Model Exchange Notice and Sets Compliance Deadline
Beginning Jan. 1, 2014, individuals and employees of small businesses will have access to insurance coverage through the Affordable Care Act’s (ACA) health insurance exchanges (Exchanges), which are also known as Health Insurance Marketplaces. Open enrollment under the Exchanges will begin on Oct. 1, 2013. ACA requires employers to provide all new hires and current employees with a written notice about ACA’s Exchanges. This requirement is found in Section 18B of the Fair Labor Standards Act (FLSA).
On May 8, 2013, the Department of Labor (DOL) released Technical Release 2013-02 to provide temporary guidance on the Exchange notice requirement. This temporary guidance will remain in effect until the DOL issues regulations or other guidance. According to the DOL, future regulations or other guidance will provide employers with adequate time to comply with any additional or modified requirements.
In connection with the temporary guidance, the DOL announced the availability of model Exchange notices for employers to use to satisfy the Exchange notice requirement. The DOL also set a compliance deadline for the Exchange notices. Employers must provide employees with an Exchange notice by Oct. 1, 2013.
In addition, the DOL’s temporary guidance includes a new COBRA model election notice, which has been updated to include information regarding health coverage alternatives offered through the Exchanges.
ACA’s Exchange notice requirement applies to employers that are subject to the FLSA. In general, the FLSA applies to employers that employ one or more employees who are engaged in, or produce goods for, interstate commerce. In most instances, a business must have at least $500,000 in annual dollar volume of sales or receipts to be covered by the FLSA.
The FLSA also specifically covers the following entities: hospitals; institutions primarily engaged in the care of the sick, the aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; and federal, state and local government agencies.
The DOL’s Wage and Hour Division provides guidance relating to the applicability of the FLSA in general, including a compliance assistance tool to determine applicability of the FLSA.
Under the temporary guidance, the Exchange notice must:
- Include information regarding the existence of an Exchange, as well as contact information and a description of the services provided by an Exchange;
- Inform the employee that the employee may be eligible for a premium tax credit if the employee purchases a qualified health plan through the Exchange; and
- Contain a statement informing the employee that, if the employee purchases a qualified health plan through the Exchange, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for federal income tax purposes.
The DOL provided the following model Exchange notices:
- A model Exchange notice for employers who do not offer a health plan; and
- A model Exchange notice for employers who offer a health plan to some or all employees.
- Employers may use one of these models, as applicable, or a modified version, provided the notice meets the content requirements described above.
Providing the Notice
Who Must Receive a Notice?
- Employers must provide the Exchange notice to each employee, regardless of plan enrollment status or of part-time or full-time status. Employers are not required to provide a separate notice to dependents or other individuals who are or may become eligible for coverage under the plan but who are not employees.
What Is the Deadline for Providing the Notice?
- ACA required employers to provide the Exchange notice by March 1, 2013. However, on Jan. 24, 2013, the DOL announced that employers would not be held to the March 1, 2013, deadline and that employers would not have to comply with the Exchange notice requirement until more guidance was issued.
- The DOL’s temporary guidance sets a compliance deadline for providing the Exchange notices that matches up with the start of the first open enrollment period under the Exchanges.
Employers must provide the Exchange notice to both new hires and current employees as follows:
- New Hires – Employers must provide the notice to each new employee at the time of hiring beginning Oct. 1, 2013. For 2014, the DOL will consider a notice to be provided at the time of hiring if the notice is provided within 14 days of an employee’s start date.
- Current Employees – With respect to employees who are current employees before Oct. 1, 2013, employers are required to provide the notice no later than Oct. 1, 2013.
- Employers that decide to inform their employees about the Exchanges earlier than the Oct. 1, 2013, deadline are permitted to use the model notices and rely on the DOL’s temporary guidance.
Method of Providing Notice
- The notice is required to be provided automatically, free of charge.
- The notice must be provided in writing in a manner calculated to be understood by the average employee. It may be provided by first-class mail. Alternatively, it may be provided electronically if the requirements of the DOL’s electronic disclosure safe harbor are met. This safe harbor allows plan administrators to send certain disclosures electronically to:
- Employees with work-related computer access; and
- Other plan participants and beneficiaries who consent to receive disclosures electronically.
- The safe harbor does not require the use of any specific form of electronic media. However, plan administrators are required to use measures reasonably calculated to ensure actual receipt of the material by plan participants and beneficiaries. Merely placing a disclosure on a company website available to employees will not by itself satisfy this disclosure requirement.
COBRA ELECTION NOTICE
Under COBRA, a group health plan must provide qualified beneficiaries with an election notice, which describes their rights to continuation coverage and how to make an election. The election notice must be provided to the qualified beneficiaries within 14 days after the plan administrator receives the notice of a qualifying event. The DOL has a model election notice that plans may use to satisfy the requirement to provide the election notice under COBRA.
According to the DOL, some qualified beneficiaries may want to consider and compare health coverage alternatives to COBRA continuation coverage that are available through the Exchanges. Qualified beneficiaries may also be eligible for a premium tax credit for an Exchange plan.
The DOL updated the model COBRA election notice to help make qualified beneficiaries aware of other coverage options available in the Exchanges. Use of the model election notice, appropriately completed, will be considered by the DOL to be good faith compliance with the election notice content requirements of COBRA.
Links to Department of Labor Model Notices
For employers that offer coverage to some or all employees: http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf
For employers who do not offer coverage: http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf
HHS Plans to Delay Key Aspect of SHOP Exchanges
Beginning in 2014, individuals and small employers will be able to purchase health insurance through online competitive marketplaces, or Exchanges. The Affordable Care Act (ACA) requires each state that chooses to operate an Exchange to also establish a Small Business Health Options Program (SHOP) Exchange. The SHOP Exchange is intended to assist eligible small employers in providing health insurance for their employees.
HHS will establish and operate a federally-facilitated Exchange (FFE) in each state that does not establish its own Exchange. The FFE will include both individual market and SHOP components.
Small employers with up to 100 employees will be eligible to participate in the Exchanges. However, until 2016, states may limit participation in the SHOP Exchanges to businesses with up to 50 employees. Beginning in 2017, states may allow businesses with more than 100 employees to participate in the Exchanges.
On March 11, 2013, HHS issued a proposed rule that would amend some of the standards for SHOP Exchanges. Most notably, the proposed rule creates a transition policy regarding an employee’s choice of qualified health plans (QHPs) in the SHOP. The transition policy would delay implementation of the employee choice model as a requirement for all SHOPs for one year, until 2015.
FUNCTIONS OF THE SHOP EXCHANGES
On March 27, 2012, HHS issued a final rule on establishment of the Exchanges. This final rule describes the minimum functions of a SHOP. The final rule provides that a SHOP must allow employers the option to offer employees all QHPs at a level of coverage chosen by the employer—bronze, silver, gold or platinum. In addition, the final rule permits SHOPs to allow a qualified employer to choose one QHP for its employees.
In a separate final rule issued in March 2013, HHS provided that the federally-facilitated SHOP (FF-SHOP) would give employers the choice of offering only a single QHP, as employers customarily do today, in addition to the choice of offering all QHPs at a single level of coverage.
In the proposed rule, HHS provides a transition policy for 2014 plan years that is intended to provide all SHOPs (both state SHOPs and the FF-SHOP) with additional time to prepare for the employee choice model.
Under the transition policy, for plan years beginning on or after Jan. 1, 2014, and before Jan. 1, 2015, state SHOPs would not have to allow employers to offer their employees a choice of QHPs at a single level of coverage. However, a SHOP may decide to provide this option to employers for 2014 plan years.
In addition, for plan years beginning on or after Jan. 1, 2014, and before Jan. 1, 2015, FF-SHOPs would not allow qualified employers to offer their employees a choice of QHPs at a single level of coverage. For 2014 plan years, the FF-SHOP would assist employers in choosing a single QHP to offer their qualified employees.
According to HHS, the transition policy would increase the stability of the small group market while providing small groups with the benefits of SHOP in 2014 (for example, choice among competing QHPs and access for qualifying small employers to the small business health insurance tax credit).
The 2012 final rule also included a premium aggregation function for the SHOP that was designed to assist employers whose employees were enrolled in multiple QHPs. Because this function will not be necessary in 2014 for SHOPs that delay implementation of the employee choice model, the proposed rule would make the premium aggregation function optional for plan years beginning before Jan. 1, 2015.
CMC Advisory Group will continue to monitor health care reform developments and will provide updated information as it becomes available.
2013 Employee Benefits Compliance Summary
In light of the Supreme Court’s June 28, 2012, decision to uphold the health care reform law, or Affordable Care Act (ACA), employers must continue to comply with ACA mandates that are currently in effect. Employers must also prepare to comply with ACA changes that will go into effect in the future. To prepare for upcoming changes, employers need to be aware of the ACA mandates that will go into effect in 2013.
This CMC Advisory Group Legislative Brief provides a compliance summary for employers for 2013. Please contact your CMC Advisory Group representative for assistance or if you have questions about changes that were required in previous years.
GRANDFATHERED PLAN STATUS
A grandfathered plan is one that was in existence when health care reform was enacted on March 23, 2010. If you make certain changes to your plan that go beyond permitted guidelines, your plan is no longer grandfathered. You must determine if your plan continues to maintain grandfathered status with each new plan year. If your plan loses grandfathered status, there are specific plan changes which must be made in order to comply with ACA. Contact your CMC Advisory Group representative if you have questions about changes you have made, or are considering making, to your plan.
Effective for plan years beginning on or after Jan. 1, 2014, health plans will be prohibited from placing annual limits on essential health benefits. Until then, however, restricted annual limits are permitted.
SUMMARY OF BENEFITS AND COVERAGE
Health plans and health insurance issuers must provide a Summary of Benefits and Coverage (SBC) to participants and beneficiaries. The SBC is a relatively short document that provides simple and consistent information about health plan benefits and coverage in plain language. A template for the SBC is available, along with instructions and examples, and a uniform glossary of terms.
Plans and issuers must provide the SBC to participants and beneficiaries who enroll or re-enroll during an open enrollment period beginning with the first open enrollment period that begins on or after Sept. 23, 2012. The SBC also must be provided to participants and beneficiaries who enroll other than through an open enrollment period (including individuals who are newly eligible for coverage and special enrollees) effective for plan years beginning on or after Sept. 23, 2012.
60-DAY NOTICE OF PLAN CHANGES
A health plan or issuer must provide days’ advance notice of any material modifications to the plan that are not related to renewals of coverage. Notice can be provided in an updated SBC or a separate summary of material modifications. This 60-day notice requirement becomes effective when the SBC requirement goes into effect for a health plan.
$2,500 CONTRIBUTION LIMIT FOR HEALTH FSAS
Effective for plan years beginning on or after Jan. 1, 2013, an employee’s annual pre-tax salary reduction contributions to a health flexible spending account (FSA) must be limited to $2,500.
PREVENTIVE CARE SERVICES FOR WOMEN
Effective for plan years beginning on or after Aug. 1, 2012, non-grandfathered health plans must cover specific preventive care services for women without cost-sharing requirements.
The covered preventive care services for women include: well-woman visits; gestational diabetes screening; human papillomavirus (HPV) testing; sexually transmitted infection (STI) counseling; human immunodeficiency virus (HIV) screening and counseling; FDA-approved contraception methods and contraceptive counseling; breastfeeding support, supplies and counseling; and domestic violence screening and counseling. Exceptions to the contraception coverage requirement apply to certain religious employers. The preventive care guidelines for women are available at: www.hrsa.gov/womensguidelines/.
Beginning with the 2012 tax year, employers that are required to issue 250 or more W-2 Forms must report the aggregate cost of employer-sponsored group health coverage on employees’ W-2 Forms. The cost must be reported beginning with the 2012 W-2 Forms, which are issued in January 2013.
ACA’s W-2 reporting requirement is optional for smaller employers until further guidance is issued. Also, the reporting is for informational purposes only; it does not affect the taxability of benefits.
RETIREE DRUG SUBSIDY
The Medicare Part D program includes a Retiree Drug Subsidy (RDS) to encourage employers to continue providing prescription drug coverage to Medicare-eligible retirees. The RDS is available to certain employers that sponsor group health plans covering retirees who are entitled to enroll in Medicare Part D but elect not to do so. Employers receive RDS payments tax-free. In addition, before 2013, employers receiving the RDS could take a tax deduction for their retiree prescription drug costs, unreduced for the subsidy amount. Beginning in 2013, employers receiving the RDS will no longer be permitted to take a tax deduction for the subsidy amount.
MEDICARE TAX INCREASES
Effective Jan. 1, 2013, the Medicare Part A (hospital insurance) tax rate increases by 0.9 percent (from 1.45 percent to 2.35 percent) on wages over $200,000 for an individual taxpayers and $250,000 for married couples filing jointly. (The tax is also expanded to include a 3.8 percent tax on unearned income in the case of individual taxpayers earning over $200,000 and $250,000 for married couples filing jointly).
An employer must withhold the additional Medicare tax on wages or compensation it pays to an employee in excess of $200,000 in a calendar year. An employer has this withholding obligation even though an employee may not be liable for the additional Medicare tax because, for example, the employee’s wages or other compensation together with that of his or her spouse (when filing a joint return) does not exceed the $250,000 liability threshold. Any withheld additional Medicare tax will be credited against the total tax liability shown on the individual’s income tax return (Form 1040).
EMPLOYEE NOTICE OF EXCHANGE
Originally, effective March 1, 2013, employers were required to provide all new hires and current employees with a written notice about ACA’s health insurance exchanges (Exchanges). At this time, federal agencies have not yet issued more specific guidance on this notice requirement and have not yet provided a model notice for employers to use. Therefore, the implementation of this requirement has been indefinitely delayed.
ACA created the Patient-Centered Outcomes Research Institute (Institute) to help patients, clinicians, payers and the public make informed health decisions by advancing comparative effectiveness research. The Institute’s research is to be funded, in part, by fees paid by health insurance issuers and sponsors of self-insured health plans. These fees are called comparative effectiveness research fees or CER fees.
Self-funded plans and health insurance issuers must pay a $1 per covered life fee for comparative effectiveness research. Fees are effective for plan years ending on or after Oct. 1, 2012. Full payment of the research fees will be due by July 31 of each year.
Health plans must file a statement with the Department of Health and Human Services (HHS), certifying their compliance with HIPAA’s electronic transaction standards and operating rules. Under ACA, the first deadline for certifying compliance with certain HIPAA standards and rules is Dec. 31, 2013. HHS has indicated that it intends on issuing more guidance on this requirement in the future.
Please feel free to contact your CMC Advisory Group representative to discuss any questions you may have regarding the implementation of ACA requirements.
Health Care Reform: Pay or Play Calculator
WILL YOU BE HIT WITH PENALTIES DUE TO HEALTHCARE REFORM IN 2014?
In 2014, some employers may have to pay a penalty if their health plan doesn’t meet certain criteria. CMC Advisory Group can determine if your health plan will be considered affordable, if it provides minimum value, and if you could be affected by Health Care Reform’s penalties.
HOW MUCH WILL YOU PAY IN PENALTIES FOR YOUR PLAN?
Using our Health Care Reform Pay or Play Calculator, we can determine how much you could be required to pay in penalty taxes with your current health plan, as well as model changes that may protect you from being assessed fines.
DO YOU HAVE A PLAN FOR THE UPCOMING REGULATIONS?
By comparing the amount of penalties for your existing health plan, the cost of upgrading to a compliant plan and the penalties associated with dropping coverage, we can tailor a strategic benefit plan to fit your organization’s unique needs moving forward.
Please contact CMC Advisory Group to find out how these penalties could affect you. Our experts can walk you through the process of determining how the upcoming regulations will impact your organization and discuss what benefit plan strategies to implement moving forward.
Know Your Employee Benefits: Open Enrollment Glossary of Terms
Benefit and insurance issues important to you - brought to you by the health insurance experts at CMC Advisory Group.
OPEN ENROLLMENT GLOSSARY OF TERMS
Health insurance terms made easy
Open enrollment is the time of year reserved for you to make changes to your benefit elections. Unfamiliar terms can make this process confusing. To help you navigate your benefits options, check out these definitions of common open enrollment terms.
Coinsurance – The amount or percentage that you pay for certain covered health care services under your health plan. This is typically the amount paid after a deductible is met, and can vary based on the plan design.
At open enrollment time, you have decisions to make. Don’t let confusing terms trip you up with this handy list of commonly used terms.
Consumer-Driven (also known as consumer-directed or consumer choice) Health Care (CDHC) – Health insurance programs and plans that are intended to make you more informed about your health. Under these plans, you can use health care services more effectively, have more control over your health care dollars and the plans are designed to be more affordable. These medical plans also offer reduced premium costs in exchange for higher deductibles. Generally, they include preventive coverage, such as a mammogram or annual physical, at little or no cost. Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) are common examples of CDHC plans.
Copayment – The flat fee that you pay towards the cost of covered medical services.
Covered Expenses – Health care expenses that are covered under your health plan.
Deductible – Before benefits are available through a health plan, you must pay a specific dollar amount out of pocket. Under some plans, the deductible is waived for certain services.
Dependent – Individuals who meet eligibility requirements under a health plan and are enrolled in the plan as a qualified dependent.
Flexible Spending Account (FSA) – An account that allows you to save tax-free dollars for qualified medical and/or dependent care expenses that are not reimbursed. You determine how much you want to contribute to the FSA at the beginning of the plan year. If there are funds left in the account at the end of the plan year, the money is forfeited back to your employer.
Health Management Organization (HMO) – An approved and licensed organization of physicians and hospitals established to provide individuals with benefits and services. Requires you to see only doctors or hospitals that are on a specified list of providers.
Health Reimbursement Arrangement (HRA) – An account in which the company deposits pre-tax dollars for each of its covered employees. Employees can then use this account as reimbursement for qualified health care expenses. If there are funds left over in the account at the end of the plan year, it can be carried over into the next year. The account belongs to the employer.
Health Savings Account (HSA) – This is a medical savings account set up and used to pay for eligible medical expenses. Contributions can be made by both you and your employer. The money is taken directly from your paycheck before taxes and is then placed in the account. Balances carry from one year to the next, and the account belongs to you. Withdrawals for non-medical expenses are subject to income taxes, and an additional penalty if age 65 or under. HSAs must be coupled with qualified high-deductible health plans (HDHP).
High-Deductible Health Plan (HDHP) – A qualified health plan that gives you more control over your health care spending by offering lower monthly premiums in exchange for higher deductibles and out-of-pocket limits. These plans are often coupled with an HSA or HRA.
In-Network – Care received from your primary care physician or from a specialist within an outlined list of health care practitioners.
Inpatient – A person who is treated as a registered patient in a hospital or other health care facility. This person accrues room and board charges.
Medically Necessary (or medical necessity) – Services or supplies provided by a hospital, other health care facility or physician that meet the following criteria: (1) are appropriate for the symptoms and diagnosis and/or treatment of the condition, illness, disease or injury; (2) serve to provide diagnosis or direct care and/or treatment of the condition, illness, disease or injury; (3) are in accordance with standards of good medical practice; (4) are not primarily serving as convenience; and (5) are considered the most appropriate care available.
Medicare – An insurance program administered by the U.S. government to provide health coverage to those typically age 65 and older.
Member – You and those covered become members when you enroll in a health plan. This includes eligible employees, their dependents, COBRA beneficiaries and surviving spouses.
Out-of-Network – Care you receive without a physician referral or services received by a non-network service provider. Out-of-network health care and plan payments are subject to deductibles and copayments.
Out-of-Pocket Expense – Amount that you must pay towards the cost of health care services. This includes deductibles, copayments and coinsurance.
Out-of-Pocket Maximum (OPM) – The top amount paid for covered services during a benefit period. Both the deductible and the coinsurance apply towards meeting the OPM, but copayments may not apply. Under some plans, the deductible and OPM may have the same dollar limit.
Preferred Provider Organization (PPO) – A health plan that offers both in-network and out-of-network benefits. Members must choose one of the in-network providers or facilities to receive the highest level of benefits.
Premium – The amount you pay for a health plan in exchange for coverage. Health plans with higher deductibles typically have lower premiums.
Primary Care Physician (PCP) – The doctor that you select to coordinate your care under your health plan. This generally includes family practice physicians, general practitioners, internists, pediatricians, etc.
Usual, Customary and Reasonable (UCR) Allowance – The fee paid for covered services that is: (1) a similar amount to the fee charged from a health care provider to the majority of patients for the same procedure; (2) the customary fee paid to providers with similar training and expertise in a similar geographic area, and (3) reasonable in light of any unusual clinical circumstances, etc.
Health Care Reform Legislative Brief: Pay or Play Calculator
CMC Advisory Group is pleased to announce the addition of the Health Care Reform Pay or Play Calculator to its library of resources.
Beginning in 2014, employers with more than 50 full-time equivalent employees may be subject to a penalty tax if they do not offer health care coverage to all full-time employees (and their dependents). These employers may also be subject to a penalty if they offer coverage that is unaffordable or does not provide minimum value.
These penalties, known as the “Pay or Play” penalties, will affect an employer once any full-time employee purchases health insurance through an exchange and receives a tax credit or cost-sharing reduction related to the coverage.
CMC Advisory Group is making available to clients the Health Care Reform Pay or Pay Calculator, a comprehensive modeling tool that can analyze whether an organization’s current coverage is considered affordable or if it provides minimum value, and the amount of potential penalties that may be triggered.
To find out how these penalties will affect you, employers are encouraged to contact CMC’s Practice Leader, Nancy Daas at (312) 789-5272 or
Health Care Reform Legislative Brief: Supreme Court Upholds Health Care Reform Law
On June 28, 2012, the last day of its current term, the U.S. Supreme Court announced its decision on the constitutionality of the health care reform law. The Court upheld the entire law, holding that Congress acted within its constitutional authority when enacting the individual mandate. This means that the health care reform law will continue to be implemented as planned and provisions that are already effective will continue.
The health care reform law, commonly referred to as the Affordable Care Act, was enacted in 2010. Opponents of the law quickly started filing legal challenges to its validity. Most of the legal challenges focused on the constitutionality of the law’s individual mandate—the requirement that individuals purchase health insurance coverage or pay a penalty beginning in 2014.
The U.S. Courts of Appeals split in their decisions regarding the law’s constitutionality. To resolve this uncertainty, the U.S. Supreme Court reviewed the health care reform law in March 2012. The Court heard six hours of oral argument on the case, which is an extraordinary amount of time for oral argument. Most modern court cases only receive one hour of oral argument so this was indicative of the importance of the health care reform law challenges.
CHALLENGES TO THE INDIVIDUAL MANDATE
The main substantive challenge to the health care reform law was whether Congress had the authority under the U.S. Constitution’s Commerce Clause to require individuals to purchase health insurance coverage. The Commerce Clause gives Congress the power to regulate multi-state, economic activity. Most of the arguments centered on whether enacting the mandate fell within the Congressional power to regulate interstate commerce.
Opponents of the health care reform law argued that the Commerce Clause does not give Congress the power to regulate economic inactivity (that is, the decision not to purchase health insurance). They noted that Congress’ Commerce Clause power has never before been extended to this degree, and argued that this would open the door for the federal government to have unrestricted power to regulate.
The Obama Administration, however, stated that the law was an attempt by Congress to address the problems of access and affordability in the national health care market. The Administration pointed to the health care costs associated with the uninsured to demonstrate the economic effect of not purchasing health coverage, and argued that the law expands access to health care by making affordable health insurance more widely available.
Opponents of the law also argued that without the individual mandate, the law could not function as intended and would have to be struck down in its entirety. The Obama Administration argued that, in the event the individual mandate was ruled unconstitutional, only certain provisions of the law—those related to guaranteed issue and underwriting restrictions—would also be invalid. Thus, these parts of the law could be severed and all other provisions could stand.
THE COURT’S DECISION
The Supreme Court ultimately ruled that Congress acted within its constitutional authority when enacting the individual mandate. In its ruling, the Court first concluded that the Commerce Clause did not give Congress the power to pass the individual mandate. The Court concluded that Congress has the authority to regulate interstate commerce,but does not have the authority to compel it. The Court stated that “construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority.”
However, the Court held that Congress had the power to enact the mandate under its authority to impose taxes. The majority of the Court agreed that the individual mandate’s penalty is essentially a tax that Congress can impose using its taxing authority. The Court held that “our precedent demonstrates that Congress had the power to impose the exaction in [the individual mandate] under the taxing power, and that [the individual mandate] need not be read to do more than impose a tax. That is sufficient to sustain it.”
Because the Court upheld the individual mandate, it did not need to decide whether other provisions of the health care reform law were constitutional. One exception to this is a provision that required states to comply with the health care reform law’s new Medicaid eligibility requirements or risk losing their federal funding. The constitutionality of this provision was also before the Court. On that issue, the Court ruled that the provision is constitutional, but that Congress cannot penalize states that decide not to participate in the law’s Medicaid expansion by taking away their existing Medicaid funding.
Because the individual mandate was upheld, all aspects of the health care reform law that have been implemented will remain in effect. Additionally, the remaining provisions of the health care reform law that are not currently in effect will continue to be implemented as planned. Most notably, beginning in 2014, all individuals will generally be required to purchase health insurance or pay a penalty.
Many of the health care reform law’s provisions require agency guidance to be implemented. The Departments of Labor (DOL), Health and Human Services (HHS) and Treasury have been regularly issuing guidance to implement the health care reforms. These agencies will continue to promulgate regulations relating to the health care reform law, and employers and health plans will be required to comply with these to the same extent that they are required to comply with the various provisions of the health care reform law.
Although the Supreme Court held that the individual mandate is constitutional, opponents of the health care reform law may challenge other provisions using various legal arguments. If any further challenges arise, courts will address these accordingly.
Additionally, members of Congress have already introduced new legislation to amend or repeal various parts of the health care reform law, and likely will continue with this strategy. Each of these possibilities may have an impact on the health care reform law and its requirements in the future.
A copy of the Supreme Court’s decision is available at: www.supremecourt.gov.
Health Care Reform Legislative Brief: MLR Rebates
A key provision of the Affordable Care Act (ACA) or “Health Care Reform” is the Medical Loss Ratio (MLR) requirement for fully-insured medical coverage. The provision states that health insurance companies must pay a minimum percentage of customers’ premium towards health care expenses and quality improvement activities. Under the law, insurance companies are required to spend at least:
- Eighty cents (80%) of every premium dollar on health care expenses and quality improvement activities for the individual and small group market (100 or fewer employees)
- Eighty-five cents (85%) of every premium dollar on health care expenses and quality improvement activities for the large group market (more than 100 employees)
In essence, the MLR provision limits the amount insurance carriers can receive to cover administration, marketing and profit to 15% or 20% of the total premium collected. If an insurer earns excess profit by failing to meet the MLR within a state market segment (individual, small group, large group), they must issue a refund to affected policyholders. Recent industry studies have estimated over $1 billion in rebates will be paid this year from the insurance companies.
IMPACT TO EMPLOYERS
If the refunded premiums were paid by both the employer and the employees, the rebate must be split between the employer and the employees. Based on Technical Release 2011-04 issued by the Department of Labor (DOL) there are three ways rebates can be applied:
- The rebate can be paid to the participants, under a fair and equitable allocation method. For example, the employer could "weight" the rebates based on their current employee benefits contribution strategy. Rebates that are paid to each qualifying employee using this method would be recognized additional taxable income.
- The employer can apply the rebate towards a future premium credit (i.e., give participants a "premium holiday" or a “premium reduction”). The credit would not be considered taxable income to the employee.
- The employer could use the rebate to provide enhanced benefits for the participants.
Other considerations from the DOL:
- Employers must apply or pay the rebate within three months of receipt in order to avoid establishing a trust to hold the funds.
- The employer may conclude that only current participants are allowed to share in the rebate.
- COBRA participants should be treated as active employees when the employer applies the rebate as a distribution, premium credit or benefit enhancement.
- If the employer is receiving a rebate from multiple policies, it must be careful to allocate the rebate related to a particular policy only to participants who were covered by the policy.
The insurance carriers must report any rebates owed for 2011 during June, 2012. Rebates must be paid to employers during August, 2012.
HHS Issues FAQs on Essential Health Benefits
The Patient Protection and Affordable Care Act (PPACA or Affordable Care Act) will require non-grandfathered health insurance plans in the individual and small group markets to cover a comprehensive set of items and services, known as the essential health benefits (EHB) package. This coverage requirement will become effective in 2014.
PPACA broadly identified 10 benefit categories to be included as EHB. PPACA also directed the Department of Health and Human Services (HHS) to provide more specific guidance on the items and services that make up the EHB package.
On Dec. 16, 2011, HHS released an informational bulletin (Bulletin) that described the approach it intends to take in future rulemaking to outline EHB. This approach defers to the individual states by giving them flexibility to select their own benchmarks for defining EHB. In connection with the Bulletin, HHS also released FAQs to provide more guidance on HHS’s intended approach for specifying EHB.
This CMC Advisory Group Legislative Brief contains HHS’s FAQs regarding defining EHB that are relevant to group health plans.
FREQUENTLY ASKED QUESTIONS ON ESSENTIAL HEALTH BENEFITS BULLETIN
1. Under the approach described in the Bulletin, would the Secretary permit the State to adopt different benchmark plans for its individual and small group markets?
A: No. A State would select only one of the benchmark options as the applicable EHB benchmark plan across its individual and small group markets both inside and outside of the Exchange. HHS believes that selecting one benchmark for these markets in a State would result in a more consistent and consumer-oriented set of options that would also serve to minimize administrative complexity. HHS seeks to provide flexibility to issuers by permitting actuarially equivalent substitution of benefits within the ten categories of benefits required by the Affordable Care Act.
2. When a State chooses an EHB benchmark plan, would the benefits be frozen in time, or as the benchmark plan updates benefits each year, would the benchmark plan reflect these updates?
A: As indicated in the Bulletin, we intend to propose a process for updating EHB in future rulemaking. Under the intended approach, the specific set of benchmark benefits selected in 2012 would apply for plan years 2014 and 2015. For 2014 and 2015, the EHB benchmark plan selection would take place in the third quarter of 2012. A consistent set of benefits across these two years would limit market disruption during this transition period. As indicated in the Bulletin, HHS intends to revisit this approach for plan years starting in 2016.
3. Would States be required to defray the cost of any State-mandated benefit?
A: The Affordable Care Act requires States to defray the costs of State-mandated benefits in qualified health plans (QHPs) that are in excess of the EHB. If a State were to choose a benchmark plan that does not include all State-mandated benefits, the Affordable Care Act would require the State to defray the cost of those mandated benefits in excess of EHB as defined by the selected benchmark.
States have several benchmark options from which to choose, including the largest small group market plan in the State, which is the default benchmark plan for each State. Generally, insured plans sold in the small group market must comply with State mandates to cover benefits. Thus, if a small group market benchmark plan was selected, these mandated benefits would be part of the State-selected EHB. However, if there are State mandates that do not apply to the small group market, such as mandates that apply only to the individual market or to HMOs, the State would need to defray the costs of those mandates if the mandated benefits were not covered by the selected benchmark.
As indicated in the Bulletin, the treatment of State benefit mandates is intended as a two-year transitional policy that HHS intends to revisit for plan years starting in 2016.
4. Could a State add State-mandated benefits to the State-selected EHB benchmark plan today without having to defray the costs of those mandated benefits?
A: No. We intend to clarify that under the proposed approach any State-mandated benefits enacted after Dec. 31, 2011 could not be part of EHB for 2014 or 2015, unless already included within the benchmark plan regardless of the mandate. Note that any State-mandated benefits enacted by Dec. 31, 2011 would be part of EHB if applicable to the State-selected EHB benchmark plan. As mentioned above, HHS intends to revisit this approach for plan years starting in 2016.
5. How must a State supplement a benchmark plan if it is missing coverage in one or more of the ten statutory categories?
A: We intend to propose that if a benchmark plan is missing coverage in one or more of the ten statutory categories, the State must supplement the benchmark by reference to another benchmark plan that includes coverage of services in the missing category, as described in the Bulletin. For example, if a benchmark plan covers newborn care but not maternity services, the State must supplement the benchmark to ensure coverage for maternity services. The default benchmark plan would be supplemented by looking first to the second largest small group market benchmark plan, then to the third, and then, if neither of those alternative small group market benchmark plans offers benefits in a missing category, to the FEHBP benchmark plan with the highest enrollment.
Our research found that three categories of benefits - pediatric oral services, pediatric vision services, and habilitative services - are not included in many health insurance plans. Thus, the Bulletin describes special rules to ensure meaningful benefits in those categories:
As a transitional approach for habilitative services, the Bulletin discusses two alternative options that we are considering proposing:
- A plan would be required to offer the same services for habilitative needs as it offers for rehabilitative needs and offer them at parity.
- A plan would decide which habilitative services to cover and report the coverage to HHS. HHS would evaluate and further define habilitative services in the future. Under either approach, a plan would be required to offer at least some habilitative benefit.
For pediatric oral care, we are considering proposing that the State would supplement the benchmark plan with benefits from either:
- The Federal Employees Dental and Vision Insurance Program (FEDVIP) dental plan with the largest national enrollment; or
- The State’s separate Children’s Health Insurance Program (CHIP).
For pediatric vision care, we are considering proposing that the State would supplement the benchmark plan with the benefits covered in the FEDVIP vision plan with the highest enrollment.
6. One of the currently intended benchmark plans is the largest plan by enrollment in any of the three largest products in the small group market. What is the difference between a plan and a product?
A: For the purpose of administering the health plan finder on HealthCare.gov, HHS has defined "health insurance product" (product) as a package of benefits an issuer offers that is reported to State regulators in an insurance filing. Generally, this filing describes a set of benefits and often a provider network, but does not describe the manner in which benefits may be tailored, such as through the addition of riders. For purposes of identifying the benchmark plan, we identify the plan as the benefits covered by the product excluding all riders. HHS intends to propose that if benefits in a statutory category are offered only through the purchase of riders in a benchmark plan, that required EHB category would need to be supplemented by reference to another benchmark as described in question 5.
7. What is the minimum set of benefits a plan must offer in a statutory category to be considered to offer coverage within the category consistent with the benchmark plan?
A: Under the approach described in the Bulletin, a plan could substitute coverage of services within each of the ten statutory categories, so long as substitutions were actuarially equivalent, based on standards set forth in CHIP regulations at 42 CFR 457.431, and provided that substitutions would not violate other statutory provisions. For example, a plan could offer coverage consistent with a benchmark plan offering up to 20 covered physical therapy visits and 10 covered occupational therapy visits by replacing them with up to 10 covered physical therapy visits and up to 20 covered occupational therapy visits, assuming actuarial equivalence and the other criteria are met. The benchmark plan would provide States and issuers with a frame of reference for the EHB categories.
8. Can scope and duration limitations be included in the EHB?
A: Yes. Under the intended approach, a plan must be substantially equal to the benchmark plan, in both the scope of benefits offered and any limitations on those benefits such as visit limits. However, any scope and duration limitations in a plan would be subject to review pursuant to statutory prohibitions on discrimination in benefit design. In addition, the Public Health Service Act (PHS Act) section 2711, as added by the Affordable Care Act, prohibits imposing annual and lifetime dollar limits on EHB. Note that for annual dollar limits, the prohibition generally applies in full starting in 2014, with certain restricted annual limits permitted until that time. The prohibition on annual dollar limits does not apply to grandfathered individual market policies.
9. State-mandated benefits sometimes have dollar limits. How does the intended EHB policy interact with the annual and lifetime dollar limit provisions of the Affordable Care Act?
A: PHS Act section 2711, as added by the Affordable Care Act, does not permit annual or lifetime dollar limits on EHB. Therefore, if a benefit, including a State-mandated benefit, included within a State-selected EHB benchmark plan was to have a dollar limit, that benefit would be incorporated into the EHB definition without the dollar limit.
However, based on the Bulletin describing our intended approach, plans would be permitted to make actuarially equivalent substitutions within statutory categories. Therefore, plans would be permitted to impose non-dollar limits, consistent with other guidance, that are at least actuarially equivalent to the annual dollar limits.
10. How would the intended EHB policy affect self-insured group health plans, grandfathered group health plans, and the large group market health plans? How would employers sponsoring such plans determine which benefits are EHB when they offer coverage to employees residing in more than one State?
A: Under the Affordable Care Act, self-insured group health plans, large group market health plans, and grandfathered health plans are not required to offer EHB. However, the prohibition in PHS Act section 2711 on imposing annual and lifetime dollar limits on EHB does apply to self-insured group health plans, large group market health plans, and grandfathered group market health plans. These plans are permitted to impose non-dollar limits, consistent with other guidance, on EHB as long as they comply with other applicable statutory provisions. In addition, these plans can continue to impose annual and lifetime dollar limits on benefits that do not fall within the definition of EHB.
To determine which benefits are EHB for purposes of complying with PHS Act section 2711, the Departments of Labor, Treasury, and HHS will consider a self-insured group health plan, a large group market health plan, or a grandfathered group health plan to have used a permissible definition of EHB under section 1302(b) of the Affordable Care Act if the definition is one that is authorized by the Secretary of HHS (including any available benchmark option, supplemented as needed to ensure coverage of all ten statutory categories). Furthermore, the Departments intend to use their enforcement discretion and work with those plans that make a good faith effort to apply an authorized definition of EHB to ensure there are no annual or lifetime dollar limits on EHB.
11. In the case of a non-grandfathered insured small group market plan that offers coverage to employees residing in more than one State, which State-selected EHB benchmark plan would apply?
A: Generally, the current practice in the group health insurance market is for the health insurance policy to be issued where the employer's primary place of business is located. As such, the employer’s health insurance policy must conform to the benefits required in the employer’s State, given that the employer is the policyholder. Nothing in the Bulletin or our proposed approach seeks to change this current practice. Therefore, the applicable EHB benchmark for the State in which the insurance policy is issued would determine the EHB for all participants, regardless of the employee’s State of residence. Health insurance coverage not required to offer EHB, including grandfathered health plans and large group market coverage, would comply with the applicable annual and lifetime limits rule, as described in the answer to the previous question.
12. How do the requirements regarding coverage of certain preventive health services under section 2713 of the PHS Act interact with the intended EHB policy?
A: The preventive services described in section 2713 of the PHS Act, as added by section 1001 of the Affordable Care Act, will be a part of EHB.
13. Under the intended EHB approach, would the parity requirements in MHPAEA be required in EHB?
A: Yes. Consistent with Congressional intent, we intend to propose that the parity requirements apply in the context of EHB.
14. Could a State legislature require that issuers offer a unique set of "EHB" the way Medicaid and CHIP benchmarks have options for Secretary-approved benefits, or benchmark equivalent benefits, if the State benefits are actuarially equivalent to one of the choices that HHS defines to be EHB?
A: No. Under the approach we intend to propose, States would be required to adhere to the guidelines for selecting a benchmark plan outlined in the Bulletin. Otherwise, EHB in that State would be defined by the default benchmark plan.
15. Would States need to identify the benchmark options themselves?
A: HHS plans to report the top three FEHBP benchmark plans to States based on information from the Office of Personal Management. HHS also plans to provide States with a list of the top three small group market products in each State based on data from HealthCare.gov from the first quarter of the 2012 calendar year. We intend to continue working with States to reconcile discrepancies in small group market product enrollment data. If a State chooses to consider State employee plans and/or the largest commercial HMO benchmark plans, the State would be required to identify benchmark options for those benchmark plans, as is done today in Medicaid and CHIP.
16. When would States be required to select a benchmark plan?
A: As noted in the Bulletin, we intend to propose that States must select an EHB benchmark plan in the third quarter two years prior to the coverage year, based on enrollment from the first quarter of that year. Thus, HHS anticipates that selection of the benchmark plan for 2014 and 2015 would need to take place in the third quarter of 2012 in order to provide each State’s EHB package, which includes the benchmark plan, any State-supplemented benefits to ensure coverage in all statutory categories, and any adjustments to include coverage for applicable State mandates enacted before Dec. 31, 2011. This schedule would ensure plans have time to determine benefit offerings before QHP applications are due. Separate guidance on the selection of Medicaid benchmark plans is forthcoming.
17. How would a State officially designate and communicate its choice of benchmark plan and the corresponding benefits to HHS?
A: HHS is currently evaluating options for collecting a State’s benchmark plan selection and benefit information. A State’s EHB package would include the benefits offered in the benchmark plan, any supplemental benefits required to ensure coverage within all ten statutory categories of benefits, and any adjustments to include coverage for applicable State mandates enacted before Dec. 31, 2011. HHS anticipates that submissions will be collected from States in a standardized format that includes the name of the benchmark plan along with benefit information and, if necessary, the benefits used to ensure coverage within a missing statutory category.
18. How can my State find benefit information with respect to the default benchmark plan?
A: As indicated in the Bulletin, we intend to propose that the default benchmark plan in each State would be the largest small group market product in the State’s small group market. HHS anticipates that it will identify and provide benefit information with respect to State-specific default benchmark plans in the Fall of 2012.
19. By empowering the State to select an EHB benchmark plan, does HHS intend that the State executive branch (i.e., State Insurance Department) or the legislative branch must make the selection?
A: Each State would be permitted to select a benchmark plan from the options provided by HHS by whatever process and through whatever State entity is appropriate under State law. In general, we expect that the State executive branch would have the authority to select the benchmark plan. It is also possible that, in some States, legislation would be necessary for benchmark plan selection. It is important to note that, regardless of the entity making these State selections, it is the State Medicaid Agency that will be held responsible for the implementation of EHB through the Medicaid benchmark coverage option.